What types of hard money loan options are out there for real estate investors?
Hard money (sometimes called private money) loans are often the key to getting started in real estate investing.
Most hard money lenders have a lot of options and many even have particular specialties. This article explains what’s out there so you’re equipped to have discussions with lenders.
Here are the top five loans that you’ll encounter in the hard money industry.
1. Fix and Flip Loan
The nice thing about a fix and flip loan is that it has everything to do with the property. Even if you’re less experienced as an investor, if the property has potential, hard money lenders will listen.
If the value is there, hard money lenders could fund up to 100%.
2. Bridge Loans
You’ll typically use a bridge loan to either purchase or refinance a project. There are a few places where they generally show up:
Bridging Gaps Between Projects
If you’re currently working on a project but you come across another great deal, a bridge loan can tap into that equity. You can use this money this as an opportunity to efficiently line up your next project.
A bridge loan would put a small lien on a property that’s about to go up for sale (or is currently being sold) which gives you money to purchase your next project.
Finishing and Buying Properties
Hard money moves more quickly than large, standard bank loans. If the clock is ticking and you need to either pay or lose the deal, a hard money bridge loan can save the day.
Bridge loans can also work as a crucial part of wholetailing. Wholetailing involves anything from purchasing a discounted property and performing basic fixes to outsourcing renovations altogether.
Typically, wholetailing only requires simple funding, often 60-90-day loans.
3. Gap Loans
You can explore gap funding to cover all sorts of money holes that might show up as you go through a project:
- Down payments
- Getting a project started (consider funding for escrow draws)
- Completing a project
- Carrying project expenses (like HOA fees)
You can even use gap loans to pay off old investors if you have someone who’s ready to move on. Treat your investors well and make sure you have the financial flexibility to let them out if they need.
4. Usage Loan
A usage loan is a private non-reporting loan that helps you pay off your credit card balances. If you’re using your personal credit card for business, this can be an important way to raise your credit score.
Real estate investing is all about leverage, and a lot of banks see your credit score as a reflection of your ability to use leverage well.
The higher your credit score, the better terms you’ll often find for loans.
5. BRRRR “Buy” Loan
The two big ticket items in the BRRRR method are 1) the purchase, and 2) the refinance.
Hard money loans come into play on the purchase side of a BRRRR. Because hard money is so flexible, it can also often fund a good portion of the rehab.
These are the top five hard money loan options, but if you’re looking for something else, just ask! Remember, hard money lenders are often smaller companies and individuals. They all have preferences and specialties, so get to know them and let them get to know your project.
You’re always welcome to reach out to us at Info@HardMoneyMike.com if you have any questions or would like to discuss a deal.